Are there ways to reduce corporate tax through donations?
August 21, 2022 | 40,00 EUR | answered by Benjamin Hohenadel
Dear Tax Advisor,
My name is Louis Reuter and I am the managing director of a medium-sized company. In recent years, we have been able to generate a stable profit, which is of course pleasing. However, the corporate tax is becoming more and more of a burden for us, as our company has been classified into a higher tax bracket. As a result, our profit margin is decreasing and we have less financial resources available for investments and further business developments.
I am wondering if there are ways to reduce the corporate tax through donations. We are already involved in various social and charitable projects and would like to know if we can deduct these donations from our taxes to reduce our tax burden. Are there specific requirements that must be met for donations to be recognized as a tax-reducing measure? What types of donations are particularly favored from a tax perspective? Are there possibly alternative ways to reduce the corporate tax that we have not considered yet?
I would be very grateful if you could assist me with this matter. It is important to us to improve our financial situation while also making a contribution to society. I would greatly appreciate your expertise and advice in this area.
Sincerely,
Louis Reuter
Dear Mr. Reuter,
Thank you for your inquiry regarding the possibility of reducing corporate tax through donations. I am pleased that you are already involved in various social and charitable projects and are considering how to make these donations tax deductible to reduce your tax burden.
In principle, it is possible to recognize donations as a tax-reducing measure. However, there are certain requirements that must be met for these donations to be tax deductible. Firstly, donations must be made to charitable organizations or tax-exempt corporations. These organizations must be based in Germany or in an EU country and pursue charitable purposes.
Furthermore, as a company, you must receive a donation receipt from the organization to which you donated. This confirmation serves as proof for the tax office that the donation was actually made and is tax deductible. In addition, there are limits to the amount of deductible donations. For companies, this is usually 20% of the profit, limited to a maximum of 4 per thousand of turnover.
Certain types of donations are particularly favored for tax purposes, such as donations for charitable, religious or charitable purposes. These donations can usually be fully deducted for tax purposes. Additionally, donations in kind or donations to political parties may be deductible under certain conditions.
There are also alternative ways to reduce corporate tax that you may consider. These include investments in research and development, promoting employee training, or using tax write-offs and reserves.
I hope this information is helpful to you and I am available to answer any further questions you may have.
Sincerely,
Benjamin Hohenadel
